IMF Executive Board Concludes 2016 Article IV Consultation with France
IMF News, July 12, 2016
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- Published: July 12, 2016
Economic outlook and recent developments
- Recovery is solidifying; the economy is projected to expand by 1.5 percent this year, primarily driven by strong consumer spending.
- Signs of a cyclical recovery in investment; slump in residential construction appears to be bottoming out.
- Net exports are declining as demand from trading partners has slowed.
- Private sector job creation has remained lackluster; unemployment rate has hovered around 10 percent.
- Structural rigidities and slower productivity growth across advanced countries weigh on medium-term prospects.
- Two central policy challenges identified:
- Support a more rapid creation of new private sector jobs.
- Ensure sustainability of public finances via more efficient government spending growth.
Fiscal policy assessment and recommendations
- Structural fiscal adjustment is slowing to near zero this year; public debt ratio is still rising.
- Executive Directors supported the government’s expenditure based fiscal consolidation strategy to secure medium term sustainability while limiting short term drag on aggregate demand.
- Directors noted that more ambitious efforts to keep government spending flat in real terms would help achieve medium term fiscal targets and a durable reduction in public debt.
- Recommendation: consolidation should be underpinned by efficiency enhancing expenditure reforms at all levels of government to make it sustainable and limit adverse social and economic effects.
- Ongoing government measures include containment of spending growth at all levels while easing taxes, including reductions under the Pacte de Responsabilité et de Solidarité and the Crédit d'Impôt pour la Compétitivité et l'Emploi (CICE).
Labor market, structural reforms, and competitiveness
- Key obstacle to growth remains the labor market; structural unemployment is projected to remain high without additional reforms.
- Authorities have advanced reforms: reductions in labor tax wedge, Macron law (competition-enhancing structural reforms), Rebsamen law (earlier labor market reform), and the proposed El Khomri law (increasing scope for company-level labor agreements and reducing judicial uncertainty).
- Directors encouraged continued pursuit of an ambitious structural reform agenda and commended targeted reductions in the labor tax wedge and reforms improving social dialogue and enterprise-level bargaining.
- Additional recommended measures to reduce unemployment more rapidly:
- Strengthen job search under the unemployment benefit system.
- Reform the minimum wage formula.
- Further adapt education and training to evolving labor market needs.
- To boost private sector growth and competitiveness, Directors encouraged:
- Maintain momentum on product market reform, including easing regulations for start-ups and the self-employed.
- Further opening up access to regulated professions.
Financial sector resilience and risks
- Improved resilience of the financial sector since the crisis; large banks have buttressed their balance sheets, helping them cope with recent global financial stress.
- Banks and insurers need to further adjust business models to an era of modest growth and low rates, while adapting to the evolving regulatory framework.
- Directors recommended adjusting guaranteed interest rates under the regulated savings schemes to reflect market interest rate conditions.
- Supervisors should remain vigilant regarding potential risks, including search for yield behavior.
Executive Board Assessment (summary)
- Directors welcomed France’s continuing recovery but highlighted increased downside risks, including potential prolonged uncertainty in Europe following the U.K. referendum.
- To secure a durable reduction in unemployment and public debt given a subdued medium-term growth outlook, Directors encouraged the authorities to:
- Pursue reforms to rebuild fiscal buffers.
- Revive job creation.
- Strengthen competitiveness and productivity growth.
France: Selected Economic Indicators (as presented)
- Real economy (change in percent)
- Real GDP: 2014 = 0.6; 2015 = 1.3; 2016 (Proj.) = 1.5
- Domestic demand: 2014 = 1.1; 2015 = 2.1; 2016 (Proj.) = 1.6
- Foreign balance (contr. to GDP growth): 2014 = -0.5; 2015 = -0.3; 2016 (Proj.) = -0.2
- Nominal GDP (billions of euros)
- 2014 = 2140; 2015 = 2181; 2016 (Proj.) = 2231; 2017 (Proj.) = 2280
- CPI (year average)
- 2014 = 0.1; 2015 = 0.2; 2016 (Proj.) = 1.0
- GDP deflator
- 2014 = 0.5; 2015 = 0.7
- Gross national savings (percent of GDP)
- 2014 = 21.6; 2015 = 22.2; 2016 (Proj.) = 22.1
- Gross domestic investment (percent of GDP)
- 2014 = 22.5; 2015 = 22.4; 2016 (Proj.) = 22.7
- Public finance (percent of GDP)
- General government balance: 2014 = -4.0; 2015 = -3.6; 2016 (Proj.) = -3.3; 2017 (Proj.) = -3.0
- Structural balance (percent of potential GDP): 2014 = -2.4; 2015 = -2.0
- Primary balance: 2014 = -1.9; 2015 = -1.7; 2016 (Proj.) = -1.5; 2017 (Proj.) = -1.4
- General government gross debt: 2014 = 95.3; 2015 = 96.1; 2016 (Proj.) = 97.1; 2017 (Proj.) = 97.9
- Labor market (change in percent)
- Employment: (no values provided)
- Unemployment rate (in percent): 2014 = 10.3; 2015 = 10.4; 2016 (Proj.) = 10.0; 2017 (Proj.) = 9.7
- Money and interest rates (in percent)
- Money market rate (Euro area): ...
- Government bond yield, 10-year: 2014 = 1.7; 2015 = 0.8
- Balance of payments (in percent of GDP)
- Exports of goods: 2014 = 20.6; 2015 = 21.1; 2016 (Proj.) = 20.2; 2017 (Proj.) = 21.0
- Imports of goods: 2014 = -22.2; 2015 = -21.8; 2016 (Proj.) = -22.5
- Trade balance: 2014 = -2.5; 2015 = -2.1
- Current account: 2014 = -0.9; 2015 = -0.4
- FDI (net): 2014 = 0.0
- Official reserves (US$ billion)
- 2014 = 49.5; 2015 = 48.8
- Exchange rates
- Euro per U.S. dollar, period average: 2014 = 0.75; 2015 = 0.90
- Nominal effective rate, ULC-based (2000=100): 2014 = 101.9
- Real effective exchange rate, ULC-based (2000=100): 2014 = 111.4; 2015 = 109.3
Press Release No. 16/333, IMF Communications Department, July 12, 2016.